It has been nearly a decade since the last mega LNG newbuilding program in South Korea was completed. Building forty-five LNG carriers for Qatargas at three major Korean shipyards – Hyundai, Samsung, and Daewoo — had been challenging on many fronts. Several new technologies and systems had to be qualified at the design stage, during plan approval, construction and shop trials and verified during commissioning, gas trials, and sea trials. Anomalies and deficiencies, if left undiscovered, cause rework, costly delays and considerable technical problems after delivery. Fortunately, with a handful of very experienced engineers involved in the QG project from concept to commissioning, it was a job well done in the end, to the satisfaction of all parties. What is now imminently around the corner is something much bigger, something that will overshadow the last newbuilding boom, and bring about a welcome change to the whole marine industry across the board. Here is why:
LNG seaborne trade almost doubled between 2008 and 2018, from 235 billion cubic meters to 431 billion cubic meters. Thanks to the increasing use of LNG as fuel ashore and on ships, the next decade is likely to see even faster growth in gas transportation, and consequently, in newbuilding orders for LNG carriers.
Qatar’s LNG expansion program to raise production by 33 million tonnes per year (mtpa) by 2024 will need another 112 LNG ships of 180,000 m3 capacity (less or more depending upon the carrier size). That should be welcome news for shipyards, especially the South Korean yards with unparalleled experience in building LNG ships.
By 2030 all the new build Q-Flex and Q-Max vessels, in total 45 of them, will complete twenty years of service. That means these vessels will become expensive to maintain, even if they met the existing and future regulations of the day. A replacement program for these vessels will have to start after 2025, triggering another shipbuilding boom in the next decade.
ExxonMobil is likely to finalize investment decisions on a USD 33 billion, 15.2 mtpa LNG plant for northern Cabo Delgado, Mozambique, starting production by 2025. To lift this volume of gas, an additional 52 LNG vessels of 180,000 m3 will be required.
French energy giant Total has committed USD 25 billion in the Rovuma LNG project in the Afungi Peninsula in Mozambique. We expect it to start production by 2022. To offtake 12.9 mtpa of LNG, 44 vessels of 180,000 m3 will be needed.
ENI Coral field Offshore has already started work on 3.4 mtpa LNG production. To lift this volume, another 12 LNGCs of 180,000 m3 will be needed by 2020.
Thus, by 2025, the additional 64.5 mtpa LNG will have to be lifted, requiring at least 219 new LNG carriers of 180,000 m3 capacity. The good news is that Qatargas will be ordering 40 to 60 of the planned 100 vessels very soon. Another over a hundred vessels will have to be ordered in the next five years to meet the demand, or the charter rates will go skyrocketing. Spot rates were seen soaring recently to USD 180,000 per day as some Chinese LNG vessels dropped out of service because of US imposed sanctions against companies found dealing with Iran.
New Export Terminals
Several new LNG export terminals are being planned across the United States with an aggregated capacity of 156.9 mtpa from 17 terminals that will be ready by 2023.
Russia will add another 18.7 mtpa capacity by 2023.
Not far behind, Canada will add another 14.6 mtpa by 2023.
This additional 190.2 mtpa export capability is 60.4% of the world’s entire 2018 LNG imports. Considering global demand for LNG is unlikely to rise by more than 25% in the next five years, such an increase in export capacity is unlikely to need additional tonnage.
Evolving Trade and Technology
A growing number of new LNG vessels are moving propulsion systems to advanced slow speed ME-GI (Electronically controlled Gas Injection) and XDF engines. Improved containment systems and better on-board reliquefication plants offer minimal boil off, allowing for longer storage without cargo losses. On the spot market, ME-GI and XDF ships command a premium of USD 20,000/day over Tri-Fuel diesel-electric (TFDE) propulsion and Dual Fuel Diesel Electric (DFDE) vessels because of better fuel efficiency. ME-GI Engines are ~30% more efficient than TFDE, and >50% more efficient than old steam turbine propelled LNG vessels. Spot charters of TFDE/DFDE vessels averaged $85,500/day in 2018, compared with $53,400/day for steam LNG vessels.
Shipbuilding is the pulse of the world economy. The last shipbuilding boom at the start of the century gave us unprecedented economic growth, ever-increasing charter rates, high inflation, rising asset prices, and lower unemployment. Unfortunately, the negative impact of this is that investors often go overboard with risky investments, often too late, when the economy overheats and becomes unsustainable. This often leads to bust, as we saw in the financial crisis of 2008. We are presently looking at an upward trend with excellent prospects but time to make large investments is now, five years later will be a bit too late.
There are also many pitfalls ahead related to building new LNG carriers. The best of the shipyards capable of handling large LNGC projects are, without doubt, in South Korea. However, even these excellent shipyards have gone through massive retrenchments during the past few years, such that, they may not have sufficient talent left to meet the challenges of new megaprojects. With such a huge new building program in the offing, a tag of 20 billion dollars for a hundred ships, it is but natural that many shipowners and ship managers, even those without sufficient experience in operating LNG carriers, let alone building these, are jumping on the bandwagon. It should be borne in mind that building a highly advanced LNG carrier is not the same thing as operating one. The new building process must be carefully scrutinized by experienced engineers. Unfortunately, there is only a small pool of skilled talent capable of supervising LNG new buildings, and that too is scattered around the world because of the recent drought in shipbuilding. All these must be pulled into the project. Because any oversight during conception, design, or construction could be very expensive. It will be wise for Qatargas to be extremely cautious taking on new partners, and instead take on board the talent with proven and unparalleled experience from building Q-Flex and Q-Max vessels.